Last week, AgriMatters had argued that labour follows capital, and wherever growth opportunities become pronounced, migration follows. Thus the factor markets tend to develop a fine balance, and the effort of governments and policy makers should be to enable ‘harmony’ rather than ‘discord’. However as state after state introduces legislation or voluntary compliance codes for industry to offer employment only to ‘sons- of- the soil’ and enact laws which hinder, rather than promote an All India market, there are concerns that need to be addressed if India has to move to a trade regime in which transaction costs and time are lowered, and business transactions become more transparent. To that extent, the recent move by the Department of Consumer Affairs, Food and Public Distribution of the Government of India to hold a consultation with the states on ‘removal of trade barriers on internal trade’ is a welcome step, for primary commodities are the ones where the restrictions play the most distorting effect on the incomes of marginal and small producers who cannot hedge their production risks in the manner of organised firms.
Interestingly, even though the Sarkaria Commission that went into the entire gamut of Centre State relations strongly advocated greater fiscal and administrative decentralisation in favour of the states, when it came to the removal of barriers on internal trade, the Commission felt that ‘ state laws have implications for inter-state trade and commerce. These could be in the nature of discriminatory taxes or unreasonable restrictions impeding the free flow of inter state trade and commerce’. Therefore, as this column has argued at length in the past with respect to the APMC Act, the Union government has to take the initiative for ensuring that barriers to inter state trade and commerce are removed. The Constitution (Article 301) provides that: ‘subject to the other provisions of this Part, trade, commerce and intercourse throughout the territory of India shall be free’. Article 303 (1) also declares that neither the Parliament , nor the state legislatures have any power to make a law giving, or authorising the giving of any preference to one state over another, or any discrimination whatsoever in the above fields. The only restrictions that can be imposed by the Centre are non discriminatory (article 302).
As the Indian economy grows, so do the linkages and the scope both for preferences and discriminations in so far as individual states are concerned. However for the country as a whole, the vision for a national market is necessary, for both agricultural commodities and manufactured goods with encouragement of agro industry linkages at the base of the pyramid. It must be acknowledged that trade engages the highest number of people, and generates twice the income of ‘finance and insurance’ in the tertiary sector. Unfortunately, a comprehensive strategy or action plan to ensure free and smooth flow of internal trade in the country has not been drawn up so far. On the contrary, over the years, governments at the centre, state and local bodies have adopted practices that have erected direct and indirect barriers to smooth flow of trade in the country.
Therefore the consultation that is now underway, will examine ways to come out of the ‘plethora of state and local taxes, and an antiquated, complex and ineffective regulatory framework’ which has ‘fractured the national market into several fragmented markets’. As a result the final price paid by the consumer is very high, inconsistent across states and leads to misallocation of resources. Moreover it would be inconsistent for us to demand the removal of ‘protection measures’ by EU and US when several examples can be cited from within our own country.
The paper points out that besides economic significance, it has important political ramifications because this will remove the ‘perceived’ sense of economic exploitation that some regions feel. This would also lead to the fulfilment of a single market across the country, reduction in the gap between the price paid by the consumer, and the ‘value’ received by the producer , besides lowering transaction costs, reduced inventories, and a higher level of global competitiveness. Therefore the pressing need for the sector to have a common regulatory mechanism which can replace the diversity of controls exercised by multiple authorities at different levels which hinders inter state (and sometimes even inter district) movement of goods. A recent study of the Planning Commission has shown that there are over 400 laws which govern internal trade in the country. These include the Essential Commodities Act,1955 the Prevention of Black Marketing and Maintenance of Supplies Act,1980, the Standard of Weights and Measures Act , 1976, Package Commodities (regulation order), Trade and Merchandise Marks Act, the Hire Purchase Act, the Contract Act and the Sale of Goods Act. It may also be mentioned that the tax structure is also highly complex. Even though VAT has simplified the system, many states impose turnover tax, octroi tax and entry tax. Then there are taxes like Tobacco tax in UP and Professional Tax in West Bengal and Maharashtra. Some of these need to be scrapped, others need to be comprehensively reviewed and some need to incorporate and accept ‘technology driven’ reports/analysis as final. Thus the Food Safety and Standards Organisation will need to establish world class laboratories in every region of the country where the testing can be done as per global standards to make the products globally acceptable.
Last but not the least is the restrictions on trade in agriculture because of APMC, and AgriMatters has devoted at least three columns to this over the last two years. However in addition to APMC reforms, there is an immediate need to address the Control Orders in Sugar, Fertilize, Milk, Meat, Fruits, Cotton and Jute as well . Getting them all under a single regulatory mechanism would be a welcome first step in the direction of establishing a common market for the Indian Republic!